You know the drill... You can refer back to chapters 10 & 11 for a format for this wiki page.
Chapter 12 The Purchasing Process
Purchasing Process: Here are the activities that flow into and out of the purchasing process, as per the purchasing context diagram on Figure 12.3 in the book.
1. Inventory management flows into the process with purchase requisitions, and P.O. notifications flow out of the process.
2. Various departments flow into the process with purchase requisitions, and P.O. notifications flow out of the process.
3. The vendor flows into the process with the packing slip, and purchase orders flow out of the process to the vendor.
4. The general ledger receives input of an inventory received update from the process.
5. The warehouse receives stock through the process.
6. The accounts payable process receives receiving reports and P.O. notifications through the process.
Goal Conflicts and Ambiguities in the Organization:
Individual managers' goals may not be in congruence with organizational objectives such as order quantity needed vs supplier order discount quantities.
Ambiguity often exists in defining goals and success in meeting goals. An example given is vendor selection priocess and the determination of priorities such as lowest price, most reliable delivery or superior quality of merchandise.
Priorization of goals is necessary in choosing the best solution given the various conflicts and constraints placed on the process
Purchasing and the Supply Chain Management "SCM"
Supply chain: System of adding value beginning with acquiring raw materials (purchasing) and ending with product field support.
Organizations attempt to achieve maximum value added in all the supply chain activities
Internet purchases are driving down purchasing costs
Supply chain management (SCM) software assists with demand planning, one of the most important areas of supply chain management
Two types of SCM Software
Planning - data gathering used to assist with determination of order quantities. Planning software is key - more complex. It determines demand.
Execution - B2B automated interfaces. Execution software is less complex. It monitors inventory levels, etc.
Benefits of Managing the Supply Chain
Lower costs to customer
Higher availability of product
Higher response to customer request for product customization
Reduced inventories
Improved relationships between buyers and sellers
Smooth workloads: Due to planned good arrivals and departures, which reduces overtime costs
Reduced item costs: Due to planned purchases through contracts and other arrangements
Increased customer orders: Due to improved customer responsiveness
Reduced product defects through specifying quality during planning and sharing defect information with suppliers during execution
- CRP: Continuous Replemenishment (VMI-Vendor Managed Inventory; SMI-Supplier Managed Inventory)
- Co-Managed Inventory - form of CRP
- CFAR: Collaborative Forecasting and Replenishment
- CPFR: Collaborative Planning Forecasting and Replenishment (see Technology Summary 12.3, page 428)
Inventory Reorder Methods
- Reorder Point Analysis - each items is assigned a reorder point based on its sales rate
- Economic Order Quantity - order quantity based on costs of ordering and carrying inventory
- ABC analysis - technique for ranking items in a group based on the output of the items (used to categorize inventory items according to their importance)
Purchasing Process Context Diagram - Page 430
The purchasing process begins with inventory purchase requisition from the inventory management process or from purchase requisitions from various other dapatrments for supplies or services. Purchase orders are generated in the process and returned to the department which submitted the purchase requisition. The purchase order is also sent to the vendor to request shipment of the goods and to the warehouse. The accounts payable process is initiated once the goods have been received and the receiving report and PO accounts payable notification has been approved. The general ledger proces and balances are then updated.
Data Stores in the Purchasing Process
Inventory master data - a record of each item stocked or regularly ordered
Vendor master data - stores information about approved vendors, including vendor performance
Purchase requisition data - data on all purchase requisitions
Purchase order master data - open PO information, including status of items on order
Purchase receipts data - lists items received
Note: All data stores should be included in the ER Diagram.
Radio-Frequency Identification Technology (RFID) - system for sending and receiving data, using wireless technology, between an RFID tag and an RFID transceiver. The RFID tags are computer chips with an antenna that contains information about the object towhich it is attached. Active RFID tags store information using a power source within the tag, and passive tags obtain their power from a transceiver. Transceivers transitm, receive, and decode data from RFID tags.
Fraud and the Purchasing Function
- Many frauds involve manipulation of purchasing because it involves the payment of cash
- The typical cases included in this category of process exploitation are instances in which:
- An employee places purchase orders with a particular vendor in exchange for a kickback, secret commission, or other form of inducement from the vendor
- An employee has a conflict of interest between his responsibilities to his employer and his financial interest - direct or indirect - in a company with whom the employee does business
Consider the effect of company-level controls on purchasing business process controls
- Segregation of Duties - authorization to create vendor records and payment terms; purchasing and receiving; warehouse and receiving
- Additional Manual Controls - inspection and counting of goods upon receipt (two people); rotation of duties of buyers; selection and hiring, training and eduction, etc.
- Automated Controls - IT general controls (ITGC) - All purchasing controls performed by computer depend on the general controls, e.g. approve purchase requisitions, use authorized vendor data, approve POs, independent authorization to record receipt. Particulary concerned with controlled access to the following: vendor master records so that one cannot be added without authorization, purchase order masta data so that bogus purchase orders cannot be created to record an authorized receipt.
Chapter 12 The Purchasing Process
Purchasing Process: Here are the activities that flow into and out of the purchasing process, as per the purchasing context diagram on Figure 12.3 in the book.
1. Inventory management flows into the process with purchase requisitions, and P.O. notifications flow out of the process.
2. Various departments flow into the process with purchase requisitions, and P.O. notifications flow out of the process.
3. The vendor flows into the process with the packing slip, and purchase orders flow out of the process to the vendor.
4. The general ledger receives input of an inventory received update from the process.
5. The warehouse receives stock through the process.
6. The accounts payable process receives receiving reports and P.O. notifications through the process.
Goal Conflicts and Ambiguities in the Organization:
Purchasing and the Supply Chain Management "SCM"
Two types of SCM Software
Benefits of Managing the Supply Chain
The following website contains information about managing the supply-chain and logistics: http://www.e-businessguide.gov.au/improving/e-logistics?SQ_DESIGN_NAME=printer_friendly
This website also contains information about managing the supply chain management: http://www.cisoilgas.com/pastissue/article.asp?art=268911&issue=182
Things that can go wrong in SCM initiatives
Mitigating Problems with SCM Initiatives - Technology Summary 12.2 (page 427)
- Types of collaboration in the Supply Chain
- CRP: Continuous Replemenishment (VMI-Vendor Managed Inventory; SMI-Supplier Managed Inventory)- Co-Managed Inventory - form of CRP
- CFAR: Collaborative Forecasting and Replenishment
- CPFR: Collaborative Planning Forecasting and Replenishment (see Technology Summary 12.3, page 428)
Inventory Reorder Methods
- Reorder Point Analysis - each items is assigned a reorder point based on its sales rate
- Economic Order Quantity - order quantity based on costs of ordering and carrying inventory
- ABC analysis - technique for ranking items in a group based on the output of the items (used to categorize inventory items according to their importance)
Purchasing Process Context Diagram - Page 430
The purchasing process begins with inventory purchase requisition from the inventory management process or from purchase requisitions from various other dapatrments for supplies or services. Purchase orders are generated in the process and returned to the department which submitted the purchase requisition. The purchase order is also sent to the vendor to request shipment of the goods and to the warehouse. The accounts payable process is initiated once the goods have been received and the receiving report and PO accounts payable notification has been approved. The general ledger proces and balances are then updated.
Data Stores in the Purchasing Process
- Inventory master data - a record of each item stocked or regularly ordered
- Vendor master data - stores information about approved vendors, including vendor performance
- Purchase requisition data - data on all purchase requisitions
- Purchase order master data - open PO information, including status of items on order
- Purchase receipts data - lists items received
Note: All data stores should be included in the ER Diagram.Radio-Frequency Identification Technology (RFID) - system for sending and receiving data, using wireless technology, between an RFID tag and an RFID transceiver. The RFID tags are computer chips with an antenna that contains information about the object towhich it is attached. Active RFID tags store information using a power source within the tag, and passive tags obtain their power from a transceiver. Transceivers transitm, receive, and decode data from RFID tags.
Fraud and the Purchasing Function
- Many frauds involve manipulation of purchasing because it involves the payment of cash
- The typical cases included in this category of process exploitation are instances in which:
- An employee places purchase orders with a particular vendor in exchange for a kickback, secret commission, or other form of inducement from the vendor
- An employee has a conflict of interest between his responsibilities to his employer and his financial interest - direct or indirect - in a company with whom the employee does business
Consider the effect of company-level controls on purchasing business process controls
- Segregation of Duties - authorization to create vendor records and payment terms; purchasing and receiving; warehouse and receiving
- Additional Manual Controls - inspection and counting of goods upon receipt (two people); rotation of duties of buyers; selection and hiring, training and eduction, etc.
- Automated Controls - IT general controls (ITGC) - All purchasing controls performed by computer depend on the general controls, e.g. approve purchase requisitions, use authorized vendor data, approve POs, independent authorization to record receipt. Particulary concerned with controlled access to the following: vendor master records so that one cannot be added without authorization, purchase order masta data so that bogus purchase orders cannot be created to record an authorized receipt.